Step-by-step Guide: How to Take Inventory for Your Business

Running a store, restaurant, or bar means juggling a lot. And regularly tracking what’s on your shelves can feel like another never-ending task. 

But strong inventory management is essential for a smooth-running business. It keeps your stress levels down and makes your business more profitable. Knowing how to take inventory helps you prevent waste, avoid stockouts, and make smarter purchasing decisions. 

Whether you’re just starting out or improving a growing business, this guide breaks down the best way to take inventory step by step.

TL;DR: How to take inventory

Inventory management can feel daunting, but we’ll cover the basics in this quick summary. We’ll also include different inventory methods and how to take inventory for your business type.

Once you have this foundational knowledge under your belt, taking inventory will feel much more manageable. 

Simple steps for how to track inventory:

1. Organize: Label shelves and sort items before counting.
2. Pick your method: Manual, spreadsheet, or business inventory software.
3. Count and record: Go category by category, keeping entries consistent.
4. Compare data: Match counts to sales and purchase records.
5. Reorder smartly: Replace what’s low before you run out.

Different inventory methods:

• Physical counts: Tally every item in stock. Labor-intensive but ensures complete accuracy.
• Cycle counts: Count sections of inventory on a rotating schedule to stay accurate without disrupting operations.
• Inventory valuation methods:
  
  • FIFO (First In, First Out): Sell your oldest stock first—great for perishable or fast-moving goods.
  • LIFO (Last In, First Out): Sell your newest stock first—useful for industries where prices change often.
  • Weighted average: Use the average cost of all items for simpler, consistent pricing and recordkeeping.

How to keep track of inventory based on your business type:

• How to take inventory in a retail store: Label every shelf and bin, use SKUs and barcode scanners to stay organized, run full counts seasonally, and analyze trends to predict inventory needs.
• How to take liquor inventory: Measure partial bottles, track pour sizes, record and calculate the usage, and see if expected revenue matches actual sales.
• How to take inventory for a small business: Begin with spreadsheet templates, schedule regular counts, track supplier lead times, and eventually upgrade to affordable business inventory software that grows with you.

Best way to take inventory: Train your staff, count during quiet times, regularly monitor inventory for your most expensive products, use cycle counts, and use labor and sales reports for better forecasting.

How to manage inventory with software: Set up your product catalog in the app, integrate with your POS, enable reorder alerts, use reporting features to track usage and forecast demand, and sync with your other systems to see inventory, labor, and payroll all in one place.

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How to take inventory step by step 

Here’s a simple checklist for how to take inventory: 

1. Organize before you count

Before you start, make sure shelves and stockrooms are clearly labeled. Separate damaged or expired products and group similar items together. This saves time when you’re physically counting and helps prevent duplication.

Tip: Set aside specific scheduled times for inventory checks so they don’t interrupt regular business hours. You can even coordinate these with your team’s work schedule.

2. Choose a method (manual, spreadsheet, or software)

Manual counting works for very small inventories, but it’s easy to make mistakes. A spreadsheet improves consistency and allows quick edits. 

As your business grows, switch to business inventory software or a POS system that updates stock levels automatically and integrates with your payroll data to track costs more accurately.

3. Count items by category

Break your space into zones—like shelves, storage, or perishable goods—and count everything in one section before moving on. Always have two people double-check critical categories. Align your counting schedule with slower shifts to avoid disrupting your staff’s workflow.

4. Record counts consistently

Decide how you’ll log units (by item, case, or weight) and stick with it. A clear inventory management template avoids confusion and makes comparisons over time easier. 

For larger teams, consider assigning specific shift managers to oversee counts and record keeping.

5. Compare against sales and ordering data

Check your current counts against sales and order records. If numbers don’t align, investigate: Was something mis-scanned, misplaced, or wasted? Regular cross-checks reveal loss and theft early. 

You can also compare inventory data with labor reports in your payroll or scheduling software to see if higher staffing levels correlate with discrepancies or waste.

6. Adjust and reorder as needed

Once the count is complete, reorder anything nearing its reorder point. Try syncing inventory with your labor costs to understand the full picture of your operational expenses. When you coordinate reorders with your team’s schedules, it’s easier to assign responsibility for receiving and stocking items.

Different inventory methods explained 

Below are three of the main methods of taking inventory.

Physical count (full count)

A full physical count means tallying every item in stock. It’s labor-intensive, but ensures a higher level of accuracy, making it ideal for year-end reports or audits.

Cycle counting

Instead of counting everything at once, you count sections of your inventory on a rotating schedule—daily, weekly, or monthly. This keeps stock data current without disrupting your team’s operations.

Inventory valuation methods (FIFO, LIFO, and weighted average)

• FIFO (First In, First Out): The first items you buy are the first ones you sell. This method helps prevent waste and is ideal for perishable goods like food or flowers.
• LIFO (Last In, First Out): The newest items you buy are the first ones you sell. It’s often used in industries where prices change frequently—like hardware or construction—because it matches recent purchase costs with current sales prices.
• Weighted Average Cost Method: Instead of tracking the cost of each batch separately, this method averages the total cost of all your inventory items. It’s simpler to manage for businesses with lots of similar products, like clothing or office supplies, and smooths out cost fluctuations over time.

Whichever method you go with, remember the golden rule of inventory: Keep accurate records, count regularly, and reorder before you run out.

How to take inventory in a retail store 

Whether you run a clothing shop or a convenience store, how to take inventory in a retail store depends on volume and product variety. As a retailer, you deal with fast-moving stock, returns, and seasonal products—so accuracy and consistency are everything.

Tips on how to take inventory in a retail store:

1. Label every shelf and bin. Use item names or SKU codes to avoid confusion.
2. Use barcode scanners. Even a simple handheld scanner or app can update counts instantly.
3. Count seasonally. Run full counts before holidays or major sales to prevent overstocking.
4. Analyze trends. Review past inventory reports to predict which items to stock up on and which to phase out.

Pro tip: Integrate your POS with business inventory software to automatically track inventory as items sell. This frees up time to focus on customers and manage other retail tasks instead of counting boxes.

How to take bar and liquor inventory 

Learning how to take bar inventory (and specifically how to take liquor inventory) is key for bar management, as it helps control pour sizes, reduce shrinkage, and keep profits steady.

Liquor counts can be tricky because variations in pour size, waste, spillage, or even theft can quickly distort your profit margins. This is especially true for busy bars and restaurants.

Steps on how to take bar inventory:

1. Start with your full product list. Include brand and product names, bottle sizes, and purchase costs for all your bottles, kegs, and mixers.
2. Measure open bottles. Use a scale or measure in tenths (¾ full = 0.75 bottle).
3. Record and calculate usage. Subtract your ending count from your starting count and compare it to your sales reports.
4. Spot-check your pour costs. If you’re selling a $50 bottle of liquor by the ounce, calculate expected revenue and see if it matches actual sales.

Pro tip: Use a bar inventory app to simplify tracking. Apps that integrate with your POS can automatically flag inconsistencies, helping you spot waste or theft early.

How to take inventory for a small business 

When learning how to take inventory for a small business, it’s not just about counting items—it’s about learning how to keep track of inventory over time. That’s how you’ll spot trends and improve profit margins.

If you’re not sure how to do inventory yet, use a simple system, like spreadsheets. 

And as you grow, consider inventory management software for small businesses. It can integrate with your POS, help you automate inventory tracking, and reduce that manual spreadsheet work.

Tips on how to manage inventory for small businesses:

• Start with templates. Use an Excel or Google Sheets template that lists product names, SKUs, quantities, and reorder levels.
• Schedule regular counts. Weekly or biweekly counts prevent surprises.
• Track supplier lead times. Knowing how long restocks take helps avoid running out.
• Upgrade over time. Once manual tracking feels unmanageable, switch to a software for inventory management for small businesses to keep everything in sync.

Pair your inventory data with labor insights from Homebase—so your staffing and supply costs always align.

Best way to take inventory 

The best way to take inventory is to balance accuracy with efficiency. Use these tried-and-true techniques for busy managers:

• Train your team well. Everyone should understand labeling, counting, and data entry procedures.
• Count during off-peak hours. This reduces errors from customer interruptions.
• Spot-check high-value items. Prevent shrinkage by monitoring your most expensive products more frequently.
• Use cycle counts. Rotate which items you count weekly or monthly to maintain accuracy without shutting down operations.
• Leverage reports. Compare inventory trends to labor and sales data for better forecasting.

These expert-backed shortcuts help you stay proactive and make inventory management for small businesses smoother and faster.

If you want to work even more efficiently, you can pair your process with inventory management software. A specialized tool can help automate parts of your process, reducing the chance for errors and saving you even more time.

How to track inventory and manage it with software

Most small businesses evolve from manual tracking to spreadsheets, then to a POS system, and finally to an inventory management app. 

If you’re using spreadsheets now, business inventory software may feel a long way off, so here’s a quick run-through of what you can expect and how to use it effectively:

1. Set up your product catalog. Enter all your items into the software, including product names, SKUs or barcodes, quantities, and supplier details. This gives you a single source of truth for all inventory data and no more manual data entry after the setup.
2. Integrate your POS or sales system. This way, your inventory updates automatically with every sale, which helps prevent over-ordering and keeps your stock levels accurate in real time.
3. Enable reorder alerts. Most inventory management tools allow you to set minimum quantity thresholds. Then, when stock drops below that level, you’ll get alerts so you can reorder before running out.
4. Track usage and waste. Use reporting features to monitor shrinkage, spoilage, and returns. Many platforms generate dashboards that help you see where losses happen, whether it’s waste in the kitchen or missing items in storage.
5. Use reports for forecasting. Over time, your software collects historical data that you can use to forecast demand, budget for seasonal peaks, and plan reorders with confidence.
6. Sync with other business tools. The best inventory systems integrate with your scheduling and payroll tools so you can see how labor and inventory costs impact overall profitability. (This is where Homebase can help you keep everything connected—from scheduling shifts to managing labor costs and tracking payroll—so your operations stay balanced.)

By following these steps, you’re actively managing inventory to reduce waste, improve accuracy, and free up hours of manual work each week.

And with the rise of AI, inventory management systems are getting even smarter. AI can simplify complex logistics and inventory management by predicting stock shortages, optimizing reorder timing, and simplifying complex supply chains—all without extra effort.

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Keeping your shelves stocked and your team unstoppable 

Inventory management is important for your business because it helps you prevent waste and keep your operations running smoothly. When you stay on top of your stock levels, you avoid over-ordering, prevent shortages, and free up cash flow for other priorities.

So, whether you’re running a retail shop, café, or cocktail bar, ensure you have a clear, simple system to prevent inventory chaos. Your team will feel more organized, and your business will run more smoothly.

Once you’ve got inventory under control, use Homebase to keep the rest in sync—free scheduling, time clocks, and payroll tools built for small businesses.

“Homebase allows me to easily keep track of our daily sales and labor costs remotely – which means I can spend time with family away from my shop, but still feel some degree of oversight of my business.” — Fred Sztabinski, Owner, Fix Coffee + Bikes

Try Homebase for free today to take control of your labor costs and keep your business running on budget.

FAQs: How to do inventory explained

How do I take inventory?

To take inventory, follow these simple steps:

1. Organize: Label shelves and sort items before counting.
2. Pick your counting method: Manual, spreadsheet, or business inventory software.
3. Count and record: Go category by category, keeping entries consistent. Use either manual counts or inventory software for accuracy.
4. Compare data: Match counts to sales and purchase records.
5. Reorder smartly: Replace what’s low before you run out.

How do you do inventory for beginners?

To do inventory as a beginner, start small and stay organized. If you started your business from scratch, begin with a simple spreadsheet or paper list to track what you have on hand, what’s sold, and what needs restocking. 

Count items by category and record your numbers consistently. Then, compare your counts against sales records to spot any shortages or overstock. 

As your business grows, upgrade to inventory management software to automate counts, track trends, and reduce manual errors.

What are the three main methods of taking inventory?

The three main methods of taking inventory are physical counting, cycle counting, and inventory valuation methods (FIFO, LIFO, and Weighted Average Cost).

• Physical counts: Tally every item in stock.
• Cycle counts: Count sections of inventory on a rotating schedule.
• FIFO (First In, First Out): Sell your oldest stock first.
• LIFO (Last In, First Out): Sell your newest stock first.
• Weighted average: Use the average cost of all items.

What is the golden rule for inventory?

The golden rule for inventory is to always keep accurate records, check your data regularly, and reorder before you run out of stock. This helps you avoid last-minute shortages, prevent waste, and ensure your most popular products are always available.

Consistent tracking also lets you spot sales trends, adjust reordering habits, and make smarter purchasing decisions—key parts of learning how to manage your business operations effectively.

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